A large sales tax ended up having to be paid on construction of an ethanol plant in Nebraska, but it could have been avoided if the construction contract had been drafted differently.

Bridgeport Ethanol paid a contractor $67 million to build an ethanol plant. Nebraska, like many states, exempts equipment purchased by a manufacturer for use in manufacturing from sales and use taxes. Unfortunately, the contractor in this case bought the building materials and then conveyed the completed plant to Bridgeport. The contractor is not the manufacturer. The contractor elected to be taxed as the consumer of the building materials, triggering a tax at the contractor level rather than on the higher price for the completed plant.

The Nebraska Supreme Court said in August that the ethanol company was out of luck. It rejected the company’s claim that the contactor was merely its purchasing agent. The statutory authorization for appointment of a purchasing agent is only available to non-profit organizations and schools. It did not matter, the court said, that Bridgeport had a duty to reimburse the contractor for the taxes the contractor paid.

The case is Bridgeport Ethanol LLC v. Nebraska Department of Revenue. The court released its decision on August 10.

Keith Martin